Initial Day Trading Parameters for the NASDAQ exist between 2001 - 2020

If 2001 breaks lower expect 1975

If 2020 breaks higher expect 2045

Otherwise expect 2001 - 2020 to hold

From there Parameters we can assume a few things:

1. We will close any trade we make based on these parameters during the same session we initiated it in.  This is because these are Day Trading Parameters and they are designed to be used intraday only.

2. We can assume that the Market was somewhere between initial support and initial resistance when these Parameters were published.  This lies somewhere between 2001 and 2020 in this example.

3. We can assume that the Market will either head higher and test resistance first, or it will decline towards support.  In either case we need a plan

TRADING PLANS

There are 2 types of plans.  Each of the plan types have a series of dynamic possibilities, which should be rather obvious.  These possibilities will be discussed in detail for each plan type.  Here are the initial plan types:

• Support Plans

• Resistance plans.

If the support level is tested first the Market could either hold support, or support could break.  If the resistance level is tested first, resistance could either hold or break.as well.  However, upon each test, and each subsequent break, trading signals occur.  Let's take a look at the support plans:

If support is tested first a trading trigger occurs which recommends a long trade.  This is SUPPORT MODE.  Support Mode occurs as soon as a support level is tested.  By rule, an official test of support comes when the Market is within 3 points of stated support.

Once in Support Mode, 2 things can happen.

• Support can hold.

• Support can break.

If Support holds, the trading plan is simple:

• Buy near support, target resistance.  In our example that would be:  Buy near 2001, target 2020.  (Near means within 3 points, so 2004).

If support breaks a second trading trigger occurs.

• If a level of support breaks, a trading trigger comes which recommends a short position for balance.  Balance means that there is 1 open long position and 1 open short positions at the same time.  Balance is required because the Market is threatening a break of support in this instance.  When balance is required after a support level is tested, we consider the Market to have triggered SUPPORT BALANCE MODE. 

• Immediately after the Market gets into Support Balance Mode the 5-point rule should be implemented.  This tells us to overweight longs or shorts if the Market moves 5 points away from our Parameter.  Here's an example using the sample Parameters above:  Let's assume the Market tests support at 2001 first.  This would mean that a long signal occurred.  However, let's assume that 2001 broke slightly lower.  This would require balance, and the 5-point rule would be implemented.  Because 2001 was our Parameter, if the Market moved to 2006 after having balance we would overweight longs (2 longs and 1 short).  However, if the Market moved down instead and breached 1996 we would have a signal to overweight shorts (2 shorts 1 long).

If we are in an overweight short position (2 shorts 1 long) we are considered to be in a SUPPORT BALANCE SHORT MODE.  In this mode we should be expecting the shorts that were triggered to work for us as the Market declines to the next lower level of support.  In our example we would have a trading plan as follows:  Overweight shorts under 2001 target 1975.

If we are in an overweight long position (2 longs 1 short) we are considered to be in a SUPPORT BALANCE LONG MODE.  In this mode we should be expecting the Market to increase to the next level of resistance.  In our example that would be 2020.  In our example we would have a trading plan as follows:  Overweight longs above 2001 with a target of 2020.

In support balance short mode 2 things can happen: 

• The Market can test the next level of support.  If the Market tests the next level of support, our downside target will have been reached and we should close all trades and start over.  We would expect to make money from 2 shorts and we should expect to have had 1 stop from the long which was initiated for balance.

• The Market could turn higher.  If the Market turns higher and triggers the 5 points rule on the upside too (after having already done so on the downside), the Market goes into SUPPORT BALANCE SHORT LONG MODE

In Support balance short long mode the Market will either decline to the next lower stated levels of support, or the market will increase to the next higher level of resistance.  In either case, no more positions will be initiated until one or more of the current positions are closed.  In this instance we would have 2 longs and 2 shorts at once.  Therefore there would be 4 trades called at the same time.  This is our position limit.  We will never have more than 4 positions called at once.

Expected results after being in Support Balance Short Long Mode:

• If the next level of support is tested first we would expect to lock in gains from the shorts that were in place, but we could also expect the stops that occurred from the 2 longs that were in place to offset those gains somewhat.

• If the next level of resistance is tested first we would expect to lock in gains from the 2 long positions that were in place, but we could also expect to have those increases offset somewhat from the 2 shorts that were in place for balance.

• In either case, after these positions are closed, we should look for new trading ideas based on the Parameters that have been provided for that session.

Take a look at this graphic for an easy to understand interpretation:

In support balance long mode 2 things can happen as well: 

• The Market can test the next level of resistance.  If the Market tests the next level of resistance, our upside target will have been reached and we should close all trades and start over.  We would expect to make money from 2 longs and we should expect to have had 1 stop from the short which was initiated for balance.

• The Market could turn lower instead.  If the Market turns lower and triggers the 5 points rule on the downside too (after having already done so on the upside), the Market goes into SUPPORT BALANCE LONG SHORT MODE

In Support balance long short mode the Market will either decline to the next lower stated levels of support, or the market will increase to the next higher level of resistance.  In either case, no more positions will be initiated until one or more of the current positions are closed.  In this instance we would have 2 longs and 2 shorts at once.  Therefore there would be 4 trades called at the same time.  This is our position limit.  We will never have more than 4 positions called at once.

Expected results after being in Support Balance Long Short Mode:

• If the next level of support is tested first we would expect to lock in gains from the shorts that were in place, but we could also expect the stops that occurred from the 2 longs that were in place to offset those gains somewhat.

• If the next level of resistance is tested first we would expect to lock in gains from the 2 long positions that were in place, but we could also expect to have those increases offset somewhat from the 2 shorts that were in place for balance.

• In either case, after these positions are closed, we should look for new trading ideas based on the Parameters that have been provided for that session.

The 2 graphs below may help you better understand these concepts.  The first graphic shows you the breakdown of Support Balance Short Mode.  The Second shows a breakdown of Support Balance Long Mode:

Take a look at this graphic for an easy to understand interpretation:

The illustrations above walk you through support mode.  However, we still need to address resistance mode.  Basically this will be the opposite of support mode. 

If resistance is tested first a trading trigger occurs which recommends a short trade.  This is RESISTANCE MODE.  Resistance Mode occurs as soon as a resistance level is tested.  By rule, an official test of resistance comes when the Market is within 3 points of stated resistance.

Once in Resistance Mode, 2 things can happen.

• Resistance can hold.

• Resistance can break.

If Resistance holds, the trading plan is simple:

• Short near resistance, target support.  In our example that would be:  Short near 2020, target 2001.  (Near means within 3 points, so 2017).

If resistance breaks a second trading trigger occurs.

• If a level of resistance breaks, a trading trigger comes which recommends a long position for balance.  Balance means that there is 1 open short position and 1 open long position at the same time.  Balance is required because the Market is threatening a break of resistance in this instance.  When balance is required after a resistance level is tested, we consider the Market to have triggered RESISTANCE BALANCE MODE. 

• Immediately after the Market gets into Resistance Balance Mode the 5-point rule should be implemented.  This tells us to overweight longs or shorts if the Market moves 5 points away from our Parameter.  Here's an example using the sample Parameters above:  Let's assume the Market tests resistance at 2020 first.  This would mean that a short signal occurred.  However, let's assume that 2020 broke slightly higher.  This would require balance, and the 5-point rule would be implemented.  Because 2020 was our Parameter, if the Market moved to 2025 after having balance we would overweight longs (2 longs and 1 short).  However, if the Market moved down instead and breached 2015 we would have a signal to overweight shorts (2 shorts 1 long).

If we are in an overweight short position (2 shorts 1 long) we are considered to be in a RESISTANCE BALANCE SHORT MODE.  In this mode we should be expecting the shorts that were triggered to work for us as the Market declines to the next lower level of support.  In our example we would have a trading plan as follows:  Overweight shorts under 2020 target 2001.

If we are in an overweight long position (2 longs 1 short) we are considered to be in a RESISTANCE BALANCE LONG MODE.  In this mode we should be expecting the Market to increase to the next level of resistance.  In our example that would be 2045.  In our example we would have a trading plan as follows:  Overweight longs above 2020 with a target of 2045.

In resistance balance short mode 2 things can happen: 

• The Market can test the next level of support.  If the Market tests the next level of support, our downside target will have been reached and we should close all trades and start over.  We would expect to make money from 2 shorts and we should expect to have had 1 stop from the long which was initiated for balance.

• The Market could turn higher.  If the Market turns higher and triggers the 5 points rule on the upside too (after having already done so on the downside), the Market goes into RESISTANCE BALANCE SHORT LONG MODE

In Resistance balance short long mode the Market will either decline to the next lower stated levels of support, or the market will increase to the next higher level of resistance.  In either case, no more positions will be initiated until one or more of the current positions are closed.  In this instance we would have 2 longs and 2 shorts at once.  Therefore there would be 4 trades called at the same time.  This is our position limit.  We will never have more than 4 positions called at once.

Expected results after being in Resistance Balance Short Long Mode:

• If the next level of support is tested first we would expect to lock in gains from the shorts that were in place, but we could also expect the stops that occurred from the 2 longs that were in place to offset those gains somewhat.

• If the next level of resistance is tested first we would expect to lock in gains from the 2 long positions that were in place, but we could also expect to have those increases offset somewhat from the 2 shorts that were in place for balance.

• In either case, after these positions are closed, we should look for new trading ideas based on the Parameters that have been provided for that session.

Take a look at this graphic for an easy to understand interpretation:

In resistance balance long mode 2 things can happen as well: 

• The Market can test the next level of resistance.  If the Market tests the next level of resistance, our upside target will have been reached and we should close all trades and start over.  We would expect to make money from 2 longs and we should expect to have had 1 stop from the short which was initiated for balance.

• The Market could turn lower instead.  If the Market turns lower and triggers the 5 points rule on the downside too (after having already done so on the upside), the Market goes into RESISTANCE BALANCE LONG SHORT MODE

In Resistance balance long short mode the Market will either decline to the next lower stated levels of support, or the market will increase to the next higher level of resistance.  In either case, no more positions will be initiated until one or more of the current positions are closed.  In this instance we would have 2 longs and 2 shorts at once.  Therefore there would be 4 trades called at the same time.  This is our position limit.  We will never have more than 4 positions called at once.

Expected results after being in Resistance Balance Long Short Mode:

• If the next level of support is tested first we would expect to lock in gains from the shorts that were in place, but we could also expect the stops that occurred from the 2 longs that were in place to offset those gains somewhat.

• If the next level of resistance is tested first we would expect to lock in gains from the 2 long positions that were in place, but we could also expect to have those increases offset somewhat from the 2 shorts that were in place for balance.

• In either case, after these positions are closed, we should look for new trading ideas based on the Parameters that have been provided for that session.

Take a look at this graphic for an easy to understand interpretation: